Income Tax (Earnings and Pensions) Act 2003 (c. 1)

(The document as of February, 2008)

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Supplementary provisions

196 Effects on other income tax charges

Nothing in this Chapter affects any liability to income tax arising in respect of the acquisition by virtue of--

(a) Chapter 1 of this Part (earnings), or

(b) section 476 or 477 (charge on employee on exercise etc. of option by employee or another person).

197 Minor definitions

(1) In this Chapter--

"employee" includes a prospective employee;
"interest in shares" means an interest in shares less than full beneficial ownership and includes an interest in the proceeds of sale of part of the shares, but not a right to acquire shares;
"market value" has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act;
"shares" includes--
(a)
stock, and
(b)
any securities as defined in section 254(1) of ICTA.

(2) In this Chapter references to the acquisition of shares or an interest in shares include receipt by way of allotment or assignment or in any other way.

(3) In this Chapter references to payment for the employment-related shares include giving any consideration in money or money's worth or making any subscription, whether in pursuance of a legal liability or not.

(4) In this Chapter--

"the acquisition", and
"the employment-related shares",

have the meaning indicated in section 192(4).

Chapter 9 Taxable benefits: disposals of shares for more than market value

198 Shares to which this Chapter applies

(1) This Chapter applies to shares in a company which have, or an interest in shares in a company which has, been acquired by an employee or a person connected with an employee, if the right or opportunity to acquire the shares or interest in shares was available by reason of the employment.

(2) In this Chapter, "employment-related shares" means shares, or an interest in shares, acquired as mentioned in subsection (1).

(3) The shares may be in the employer, or in another company.

(4) A right or opportunity to acquire shares or an interest in shares which is made available by the employer is to be regarded as made available by reason of the employment unless--

(a) the employer is an individual, and

(b) the right or opportunity is made available in the normal course of the employer's domestic, family or personal relationships.

199 Disposal for more than market value: amount treated as earnings

(1) This section applies if--

(a) employment-related shares are disposed of so that neither the employee nor any person connected with the employee any longer has a beneficial interest in them, and

(b) the disposal is for a consideration which exceeds the market value of the employment-related shares at the time of the disposal.

(2) But this section does not apply if the disposal occurs after the death of the employee.

(3) The amount given by the following formula is to be treated as earnings from the employee's employment for the tax year in which the disposal occurs--

CD - MV

where--

CD is the amount or value of the consideration for the disposal, and
MV is the market value of the employment-related shares at the time of the disposal.

(4) But if--

(a) the employment has terminated or become an excluded employment before the disposal, and

(b) at the time of the acquisition of the employment-related shares the employee held, or was about to hold, the employment and it was not an excluded employment,

this section applies as if the employment had not terminated or become an excluded employment.

(5) If the employment-related shares consist of an interest in shares, the references in this section to the market value of the employment-related shares are to the proportion corresponding to the size of the interest of the market value of the shares in which the interest subsists.

200 Minor definitions

(1) In this Chapter--

"employee" includes a prospective employee;
"interest in shares" means an interest in shares less than full beneficial ownership and includes an interest in the proceeds of sale of part of the shares, but not a right to acquire shares;
"market value" has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act;
"shares" includes--
(a)
stock, and
(b)
any securities as defined in section 254(1) of ICTA.

(2) In this Chapter references to the acquisition of shares or an interest in shares include receipt by way of allotment or assignment or in any other way.

(3) In this Chapter "employment-related shares" has the meaning indicated in section 198(2).

Chapter 10 Taxable benefits: residual liability to charge

Introduction

201 Employment-related benefits

(1) This Chapter applies to employment-related benefits.

(2) In this Chapter--

"benefit" means a benefit or facility of any kind;
"employment-related benefit" means a benefit, other than an excluded benefit, which is provided in a tax year--
(a)
for an employee, or
(b)
for a member of an employee's family or household,

by reason of the employment.

For the definition of "excluded benefit" see section 202.

(3) A benefit provided by an employer is to be regarded as provided by reason of the employment unless--

(a) the employer is an individual, and

(b) the provision is made in the normal course of the employer's domestic, family or personal relationships.

(4) For the purposes of this Chapter it does not matter whether the employment is held at the time when the benefit is provided so long as it is held at some point in the tax year in which the benefit is provided.

(5) References in this Chapter to an employee accordingly include a prospective or former employee.

202 Excluded benefits

(1) A benefit is an "excluded benefit" for the purposes of this Chapter if--

(a) any of Chapters 3 to 9 of the benefits code applies to the benefit,

(b) any of those Chapters would apply to the benefit but for an exception, or

(c) the benefit consists in the right to receive, or the prospect of receiving, sums treated as earnings under section 221 (payments where employee absent because of sickness or disability).

(2) In this section "exception", in relation to the application of a Chapter of the benefits code to a benefit, means any enactment in the Chapter which provides that the Chapter does not apply to the benefit.

But for this purpose section 86 (transport vouchers under pre-26th March 1982 arrangements) is not an exception.

Cash equivalent of benefit treated as earnings

203 Cash equivalent of benefit treated as earnings

(1) The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.

(2) The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit.

(3) The cost of an employment-related benefit is determined in accordance with section 204 unless--

(a) section 205 provides that the cost is to be determined in accordance with that section, or

(b) section 206 provides that the cost is to be determined in accordance with that section.

Determination of the cost of the benefit

204 Cost of the benefit: basic rule

The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).

205 Cost of the benefit: asset made available without transfer

(1) The cost of an employment-related benefit ("the taxable benefit") is determined in accordance with this section if--

(a) the benefit consists in--

(i) an asset being placed at the disposal of the employee, or at the disposal of a member of the employee's family or household, for the employee's or member's use, or

(ii) an asset being used wholly or partly for the purposes of the employee or a member of the employee's family or household, and

(b) there is no transfer of the property in the asset.

(2) The cost of the taxable benefit is the higher of--

(a) the annual value of the use of the asset, and

(b) the annual amount of the sums, if any, paid by those providing the benefit by way of rent or hire charge for the asset,

together with the amount of any additional expense.

(3) For the purposes of subsection (2), the annual value of the use of an asset is--

(a) in the case of land, its annual rental value;

(b) in any other case, 20% of the market value of the asset at the time when those providing the taxable benefit first applied the asset in the provision of an employment-related benefit (whether or not the person provided with that benefit is also the person provided with the taxable benefit).

If those providing the taxable benefit first applied the asset in the provision of an employment-related benefit before 6th April 1980, paragraph (b) is to be read as if the reference to 20% were a reference to 10%.

(4) In this section "additional expense" means the expense incurred in or in connection with provision of the taxable benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters), other than--

(a) the expense of acquiring or producing the asset incurred by the person to whom the asset belongs, and

(b) any rent or hire charge payable for the asset by those providing the asset.

206 Cost of the benefit: transfer of used or depreciated asset

(1) The cost of an employment-related benefit is determined in accordance with this section if--

(a) the benefit consists in the transfer of an asset, and

(b) the asset has been used, or has depreciated, since the person transferring the asset ("the transferor") acquired or produced it.

(2) The cost of the benefit is the market value of the asset at the time of the transfer.

(3) But the cost of the benefit ("the current benefit") is the higher of the market value of the asset at the time of the transfer and the amount calculated in accordance with subsection (5) if--

(a) the asset is not a car (within the meaning of Chapter 6),

(b) the asset has previously been applied in the provision of a relevant employment-related benefit (whether or not the person provided with that benefit is also the transferee), and

(4) In this section "relevant employment-related benefit" means an employment-related benefit the cost of which was to be determined in accordance with section 205.

(5) The amount referred to in subsection (3) is calculated in accordance with the following steps--

Step 1

Determine the tax years in which the asset was applied in the provision of a relevant employment-related benefit (including, if appropriate, the current tax year).

Step 2

Determine the cost of the benefit for each of those tax years in accordance with section 205.

Step 3

Calculate the total of the amounts determined under step 2.

Step 4

Calculate the market value of the asset at the time when the transferor first applied it in the provision of an employment-related benefit.

Step 5

Deduct the total calculated under step 3 from the market value calculated under step 4.

The result is the amount referred to in subsection (3).

Supplementary provisions

207 Meaning of "annual rental value"

(1) For the purposes of this Chapter the "annual rental value" of land is the rent which might reasonably be expected to be obtained on a letting from year to year if--

(a) the tenant undertook to pay all taxes, rates and charges usually paid by a tenant, and

(b) the landlord undertook to bear the costs of the repairs and insurance and other expenses (if any) necessary for maintaining the land in a state to command the rent.

(2) For the purposes of subsection (1) that rent--

(a) is to be taken to be the amount that might reasonably be expected to be so obtained in respect of the letting, and

(b) is to be calculated on the basis that the only amounts that may be deducted in respect of services provided by the landlord are amounts in respect of the cost to the landlord of providing any relevant services.

(3) If the land is of a kind that might reasonably be expected to be let on terms under which--

(a) the landlord is to provide any services which are either--

(i) relevant services, or

(ii) the repair, insurance or maintenance of any premises which do not form part of the land but belong to or are occupied by the landlord, and

(b) amounts are payable in respect of the services in addition to the rent,

the rent to be established under subsection (1) in respect of the land is to be increased under subsection (4).

(4) That rent is to include--

(a) where the services are relevant services, so much of the additional amounts as exceeds the cost to the landlord of providing the services;

(b) where the services are within subsection (3)(a)(ii), the whole of the additional amounts.

(5) In this section "relevant service" means a service other than the repair, insurance or maintenance of the land or of any other land.

208 Meaning of "market value"

For the purposes of this Chapter the market value of an asset at any time is the price which the asset might reasonably be expected to fetch on a sale in the open market at that time.

209 Meaning of "persons providing benefit"

For the purposes of this Chapter the persons providing a benefit are the person or persons at whose cost the benefit is provided.

210 Power to exempt minor benefits

(1) The Treasury may make provision by regulations for exempting from the application of this Chapter such minor benefits as may be specified in the regulations.

(2) An exemption conferred by such regulations is conditional on the benefit being made available to the employer's employees generally on similar terms.

Special rules for scholarships

211 Special rules for scholarships: introduction

(1) Sections 212 to 214 supplement the preceding provisions of this Chapter in the following ways--

section 212 provides for certain scholarships provided under arrangements entered into by an employer or a connected person to be regarded as provided by reason of an employment;
section 213 provides that this Chapter does not apply to certain scholarships provided under a trust fund or a scheme;
section 214 provides a different method of determining the cost of an employment-related benefit if it consists in the provision of a scholarship from a trust fund.

(2) Section 215 limits the extent to which section 331 of ICTA (exemption for scholarship income) applies to a scholarship whose provision constitutes an employment-related benefit.

(3) In this section and sections 212 to 215 "scholarship" includes a bursary, exhibition or other similar educational endowment.

212 Scholarships provided under arrangements entered into by employer or connected person

(1) A scholarship which is provided for a member of an employee's family or household is to be regarded for the purposes of this Chapter as provided by reason of the employment if it is provided under arrangements entered into by--

(a) the employer, or

(b) a person connected with the employer.

(2) Subsection (1) applies whether or not the arrangements require the employer or the connected person to contribute directly or indirectly to the cost of providing the scholarship.

(3) A scholarship is not to be regarded as provided by reason of an employment by virtue of subsection (1) if--

(a) the employer is an individual, and

(b) the arrangements are made in the normal course of the employer's domestic, family or personal relationships.

(4) This section is without prejudice to section 201(3).

213 Exception for certain scholarships under trusts or schemes

(1) This Chapter does not apply to an employment-related benefit consisting in the provision of a scholarship if conditions A, B, C and D are met.

(2) Condition A is that the scholarship would not be regarded as provided by reason of the employment if section 201(3) and section 212 were disregarded.

(3) Condition B is that the holder of the scholarship is a full-time student.

(4) Condition C is that the scholarship is provided from a trust fund or under a scheme.

(5) Condition D is that, in the tax year in which the scholarship is provided, not more than 25% of the total amount of relevant payments is attributable to scholarships provided by reason of a person's employment.

(6) For the purposes of conditions B and D "full-time student" means a person who is in full-time education at a university, college, school or other educational establishment.

(7) For the purposes of condition D--

"employment" includes any employment within the meaning of the employment income Parts (see section 4), whether or not it is a taxable employment under Part 2;
"relevant payments" means the payments made from the fund or scheme mentioned in condition C in respect of scholarships held by full-time students.

214 Scholarships: cost of the benefit

If an employment-related benefit consists in the provision of a scholarship from a trust fund--

(a) section 204 does not apply, and

(b) the cost of the benefit is the total of the payments made from the fund to the person holding the scholarship.

215 Limitation of exemption for scholarship income in section 331 of ICTA

If an employment-related benefit consists in the provision of a scholarship, section 331(1) of ICTA (exemption for scholarship income) applies only in relation to the holder of the scholarship.

Chapter 11 Taxable benefits: exclusion of lower-paid employments from parts of benefits code

Introduction

216 Provisions not applicable to lower-paid employments

(1) The Chapters of the benefits code listed in subsection (4) do not apply to an employment in relation to a tax year if--

(a) it is lower-paid employment in relation to that year (see section 217), and

(b) condition A or B is met.

(2) Condition A is that the employee is not employed as a director of a company.

(3) Condition B is that the employee is employed as a director of a company but has no material interest in the company and either--

(a) the employment is as a full-time working director, or

(b) the company is non-profit-making or is established for charitable purposes only.

"Non-profit-making" means that the company does not carry on a trade and its functions do not consist wholly or mainly in the holding of investments or other property.

(4) The Chapters referred to in subsection (1) are--

Chapter 3 (taxable benefits: expenses payments);
Chapter 6 (taxable benefits: cars, vans and related benefits);
Chapter 7 (taxable benefits: loans);
Chapter 8 (taxable benefits: notional loans in respect of acquisitions of shares);
Chapter 9 (taxable benefits: disposals of shares for more than market value);
Chapter 10 (taxable benefits: residual liability to charge).

(5) Subsection (1)--

(a) means that in any of those Chapters a reference to an employee does not include an employee whose employment is within the exclusion in that subsection, if the context is such that the reference is to an employee in relation to whom the Chapter applies, but

(b) does not restrict the meaning of references to employees in other contexts.

(6) Subsection (1) has effect subject to--

section 188(2) (discharge of loan: where employment becomes lower-paid),
section 195(3) (discharge of notional loan: where employment becomes lower-paid),
section 199(4) (disposal for more than market value: where employment becomes lower-paid), and
section 220 (employment in two or more related employments).

What is lower-paid employment

217 Meaning of "lower-paid employment"

(1) For the purposes of this Chapter an employment is "lower-paid employment" in relation to a tax year if the earnings rate for the employment for the year (calculated under section 218) is less than £8,500.

(2) Subsection (1) is subject to section 220 (employment in two or more related employments).

218 Calculation of earnings rate for a tax year

(1) For any tax year the earnings rate for an employment is to be calculated as follows--

Step 1

Find the total of the following amounts--

(a)

the total amount of the earnings from the employment for the year within Chapter 1 of this Part,

(b)

the total of any amounts that are treated as earnings from the employment for the year under the benefits code (see subsections (2) and (3)),

(c)

the total of any amounts that are treated as earnings from the employment for the year under Chapter 12 of this Part (payments treated as earnings), and

(d)

in the case of an employment within section 56(2) (deemed employment of worker by intermediary), the amount of the deemed employment payment for the year (see section 54),

excluding any exempt income.

Step 2

Add to that total any extra amount required to be added for the year by section 219 (extra amounts to be added in connection with a car).

Step 3

Subtract the total amount of any authorised deductions (see subsection (4)) from the result of step 2.

Step 4

The earnings rate for the employment for the year is given by the formula--

---

where--

R is the result of step 3,
Y is the number of days in the year, and
E is the number of days in the year when the employment is held.

(2) Section 216(1) (provisions not applicable to lower-paid employment) is to be disregarded for the purpose of determining any amount under step 1.

(3) If the benefit of living accommodation is to be taken into account under step 1, the cash equivalent is to be calculated in accordance with section 105 (even if the cost of providing the accommodation exceeds £75,000).

(4) For the purposes of step 3 "authorised deduction" means any deduction that would (assuming it was an amount of taxable earnings) be allowed from any amount within step 1 under--

section 346 (employee liabilities),
section 352 (agency fees paid by entertainers),
section 355 (corresponding payments by non-domiciled employees with foreign employers),
section 368 (fixed sum deductions from earnings payable out of public revenue),
section 370 (travel costs and expenses where duties performed abroad: employee's travel),
section 371 (travel costs and expenses where duties performed abroad: visiting spouse's or child's travel),
section 373 (non-domiciled employee's travel costs and expenses where duties performed in UK),
section 374 (non-domiciled employee's spouse's or child's travel costs and expenses where duties performed in UK),
section 376 (foreign accommodation and subsistence costs and expenses (overseas employments)),
section 377 (costs and expenses in respect of personal security assets and services),
section 713 (payroll giving to charities),
section 592(7) of ICTA (contributions to exempt approved schemes),
section 594 of ICTA (contributions to exempt statutory schemes), or
section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions).

219 Extra amounts to be added in connection with a car

(1) The provisions of this section apply for the purposes of section 218(1) in the case of a tax year in which a car is made available as mentioned in section 114(1) (cars, vans and related benefits) by reason of the employment.

(2) Subsection (3) applies if in the tax year--

(a) an alternative to the benefit of the car is offered, and

(b) the amount that would be earnings within Chapter 1 of this Part if the benefit of the car were to be determined by reference to the alternative offered exceeds the benefit code earnings (see subsection (4)).

(3) The amount of the excess is an extra amount to be added under step 2 in section 218(1).

(4) For the purposes of subsection (2) "the benefit code earnings" is the total for the year of--

(a) the cash equivalent of the benefit of the car (calculated in accordance with Chapter 6 of this Part), and

(b) the cash equivalent (calculated in accordance with that Chapter) of the benefit of any fuel provided for the car by reason of the employment.

(5) Subsection (6) applies if in the tax year there would be an amount of general earnings consisting of--

(a) earnings within Chapter 1 of this Part, or

(b) an amount treated as earnings from the employment under Chapter 3 (expenses payments) or Chapter 4 (vouchers and credit-tokens) of this Part,

if section 239 or 269 (exemptions in respect of payments or benefits connected with taxable cars etc.) did not apply to the discharge of a liability, or to a payment or benefit, in connection with the car.

(6) The amount of general earnings mentioned in subsection (5) is an extra amount to be added under step 2 in section 218(1).

(7) Section 216(1) (provisions not applicable to lower-paid employment) is to be disregarded for the purpose of determining any amount under this section.

Treatment of related employments

220 Related employments

(1) This section applies if a person is employed in two or more related employments.

(2) None of the employments is to be regarded as lower-paid employment in relation to a tax year if--

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